MagForce — Heading in the right direction

MagForce (DB: MF6)

Currency in EUR

Last close As at 26/01/2023

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0.01 (100.00%)

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Research: Healthcare

MagForce — Heading in the right direction

MagForce is making progress in its strategy to drive the uptake of NanoTherm, its thermal ablation treatment approved in Europe for brain tumours (GBM). Despite the impact of COVID-19, 17 GBM patients were treated during H120. Management expects to sustain this in H220 (c 30–40 in FY20) and triple it in FY21 (c 90–120). Safety data from the US study for prostate cancer are still expected by end-2020. However, the impact of COVID-19 means launch is now expected in H221 (vs the prior Q221 forecast). Growth in European sales, driven by reimbursement and the ongoing roll-out of devices, as well as the potential launch in the US, will be key to crystallising value. We value MagForce at €260.6m or €9.4/share.

Analyst avatar placeholder

Written by

Susie Jana

Healthcare

MagForce

Heading in the right direction

Interim results

Healthcare equipment
& services

30 November 2020

Price

€3.88

Market cap

€108m

$1.19/€

Net debt (€m) at 30 June 2020

22.0

Shares in issue

27.8m

Free float

70%

Code

MF6

Primary exchange

Frankfurt (Xetra)

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

65.8

42.9

(3.2)

Rel (local)

50.0

40.3

(3.6)

52-week high/low

€4.49

€2.13

Business description

MagForce is a German firm with the first Europe-approved, nanotechnology-based therapy to treat brain tumours. NanoTherm therapy consists of nanoparticle instillation into the tumour, activated by an alternating magnetic field, producing heat and thermally destroying or sensitising tumours.

Next events

NanoActivator installations in Europe

2020/21

Federal reimbursement for GBM treatments in Germany

H221

FDA approval and launch of NanoTherm in the US for prostate cancer

H221

Analysts

Dr Susie Jana

+44 (0)20 3077 5700

Dr John Priestner

+44 (0)20 3077 5700

MagForce is a research client of Edison Investment Research Limited

MagForce is making progress in its strategy to drive the uptake of NanoTherm, its thermal ablation treatment approved in Europe for brain tumours (GBM). Despite the impact of COVID-19, 17 GBM patients were treated during H120. Management expects to sustain this in H220 (c 30–40 in FY20) and triple it in FY21 (c 90–120). Safety data from the US study for prostate cancer are still expected by end-2020. However, the impact of COVID-19 means launch is now expected in H221 (vs the prior Q221 forecast). Growth in European sales, driven by reimbursement and the ongoing roll-out of devices, as well as the potential launch in the US, will be key to crystallising value. We value MagForce at €260.6m or €9.4/share.

Year end

Revenue (€m)

PBT*
(€m)

EPS*
(c)

DPS
(c)

P/E
(x)

Yield
(%)

12/18

0.1

(8.7)

(32.8)

0.0

N/A

N/A

12/19

0.8

(7.6)

(28.2)

0.0

N/A

N/A

12/20e

0.8

(8.6)

(30.8)

0.0

N/A

N/A

12/21e

2.4

(7.5)

(26.9)

0.0

N/A

N/A

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

European roll-out gathers momentum

Revenues from NanoTherm have seen an uptick in growth, with 11 patients treated in Germany and six in Poland in H120. A mobile ‘plug-and-treat’ solution means the lead time to start patient treatment in new centres has shortened significantly. A new treatment centre opened in Germany (Hufeland clinic) in November and another is expected to open in 2021. The planned Health Technology Assessment (HTA) application implies federal reimbursement in Germany could start during H221, and could be the catalyst for meaningful top-line growth and sustainable profitability from 2022. The planned opening of sites in Italy and Spain in 2021 will be delayed until pandemic headwinds abate, and management will focus on other EU member states that have been less affected by COVID-19.

US prostate cancer study progressing

During H120, MagForce started the next stage in its pivotal prostate cancer study required by the US FDA for approval and to establish efficacy in thermally ablating prostate cancer lesions. Crucial safety data are expected in Q420 for the new streamlined procedure and will enable a go/no-go decision to start commercial preparations ahead of efficacy data and FDA approval (2021). Positive results would provide a key value inflection point as long-term growth depends on the US.

Valuation: €260.6m (€9.4/share)

Our revised valuation of MagForce is €260.6m (previously €269.1m), based on a risk-adjusted NPV analysis. Following updated guidance, we have adjusted our near-term sales forecasts in Germany, slightly reduced our peak sales forecasts ex Germany to €31m (from €37m) and adjusted the timing of the US sales launch. We have also updated for reported net debt, FX and rolled forward our model. We note that delays in the US trial would materially affect our valuation, and prudent execution is needed to launch the asset on time (the US is ~70% of our valuation).

NanoTherm treatment uptake afoot in the EU

MagForce has demonstrated that it started to turn a corner in H120, with 17 glioblastoma multiforme (GBM) patients commercially treated across its three operational treatment centres: 11 in Germany (Münster and Zwickau) and six in Poland (Lublin). Albeit modest, this is a significant uptick for MagForce given we estimate that c 30 fully remunerated treatments had occurred since launch (2015–19). We interpret this as a sign that the renewed commercial strategy is beginning to bear fruit in Europe and continued momentum could enable sustainable profitability from 2022. This is particularly impressive given the backdrop of the COVID-19 pandemic, which has significantly affected the number of in-patient treatments during H120, highlighting both the urgency of treating GBM patients and the commercial potential for NanoTherm in this setting.

The company expects growth in patient treatments in H120 to be sustainable, with management guiding to c 30–40 patients treated in 2020, increasing threefold during 2021 to c 90–120 patients. This will be facilitated in part by a third treatment centre in Germany at the Hufeland clinic in Mühlhausen, which opened in November and replaces the Cologne treatment centre that has not been actively treating patients this year and has been decommissioned. MagForce also plans a fourth centre in Germany, which it expects to be operational during 2021. Its broader European expansion plans have changed slightly from prior guidance, with centres in Spain and Italy put on hold until pandemic headwinds abate. However, management has highlighted that it is now also looking to expand into other Europeans countries (such as the Netherlands and Austria) following interest from neurosurgical units. We assume MagForce will continue to install two new NanoActivator devices per year across European sites, including a fourth site in Germany during 2021. A mobile ‘plug-and-treat’ solution is now the delivery standard in Europe (already used in Zwickau and Lublin) and means the lead time to start patient treatment in new centres has shortened significantly (now less than three months from placing an order).

Meaningful growth in the top line through treatment sales has historically been hampered by local reimbursement issues and we believe commercial treatments are still likely to stem primarily from private paying patients. However, management has estimated that it has the necessary number of patient outcomes to negotiate reimbursement in Germany and will make an application to the Federal Joint Committee (G-BA) by end-2020. Subject to approval, it will submit an HTA application during H221, from which point treatment costs will be federally reimbursed until a decision on full approval is made. In Poland, an investigator-initiated trial has started at the Lublin treatment centre to enable an application for reimbursement in this territory.

Streamlined prostate cancer trial data expected end-2020

Enrolment into the pivotal US study in prostate cancer has continued despite the pandemic, albeit with some delays due to the requisite testing of patients for COVID-19 infection. With the streamlined trial protocol agreed with the FDA in April 2020, safety and tolerability data for the refined treatment procedure will be available by end-2020 (Stage 2a, c 10 patients). Enrolment of patients in this second part of this study to determine efficacy will begin in January 2021 (Stage 2b, c 100 patients). While Stage 2a was conducted in only one of MagForce’s treatment centres, at least three treatment centres will be used in Stage 2b, thus accelerating patient enrolment and treatments.

MagForce has guided that based on the Stage 2a data expected at end-2020 it will start commercial preparations ahead of FDA approval. Launch and commercial treatments are now expected during H221 (previously Q221). Alongside the three established US treatment sites being used in the trial (San Antonio, Texas; Seattle, Washington; and Sarasota, Florida), MagForce intends to have two additional treatment sites ready at launch. These timelines are ambitious in our view and we reiterate that both prudent trial execution and timely commercial roll-out remain essential. MagForce has outlined two marketing channels to accelerate its commercial plans, which include a sale and leaseback partnership (three-year term) for ambulatory NanoActivators with urology clinics.

Valuation

Our revised valuation of MagForce is €260.6m or €9.4/share vs €269.1m or €9.7/share previously, based on a risk-adjusted NPV analysis. Following updated guidance, we have adjusted our near-term sales forecasts in Germany, slightly reduced our peak sales forecasts ex Germany and adjusted the timing of the US sales launch. We have rolled forward our model and updated for FX and reported net debt of €22.0m at 30 June 2020 (from €16.5m at 31 December 2019).

Exhibit 1: MagForce risk-adjusted NPV valuation

Product

Indication

Launch

Peak sales

NPV
(€m)

Probability

MagForce beneficial interest

rNPV
(€m)

rNPV/share
(€)

NanoTherm EU

GBM (Germany)

2015

€15m ($17m)

33.8

100%

100%

33.8

1.2

GBM (ex Germany)

2019

€31m ($35m)

56.8

100%

100%

56.8

2.0

NanoTherm US

Prostate cancer

2021

€235m ($265m)

365.0

80%

65%

190.7

6.9

Net cash/(debt) (AG)

(22.0)

100%

100%

(22.0)

(0.8)

Net cash/(debt) (US)

2.0

100%

65%

1.3

0.0

Valuation

435.6

260.6

9.4

Source: Edison Investment Research. Note: FX rate $1.13/€ (five-year average).

We have made a number of changes to our forecasts and valuation:

GBM treatments in Germany: we have revised our near-term sales forecasts in line with guidance, which is offset by rolling our model forward in time. We assume one device will be installed in Germany in 2021 with a further one expected in 2022, providing complete coverage. We maintain our peak sales forecast of €15m in 2025, but note that obtaining federal reimbursement from H221 could lead to faster uptake and present upside to our assumptions.

GBM treatments ex Germany: we now forecast peak sales of €31m (from €37m) in 2025. This decrease reflects the postponement of treatment sites in Italy and Spain, which were previously expected during 2021. We assume one device will be installed outside Germany during 2021 with two devices per year thereafter, assuming a return to normal order.

Prostate cancer in the US: we maintain our $265m peak sales forecasts in 2026. The slight delay in launch to H221 (from Q221) has been offset by rolling our model forward in time. With the streamlined treatment procedure, there is scope for device usage to surpass our base assumption (250 patients per year), but this is also likely to be contingent on establishing sufficient (efficacy) data to warrant reimbursement. We outline a sensitivity analysis in Exhibit 2 for our valuation, highlighting potential upside/downside scenarios.

Exhibit 2: Upside/downside base-case valuation sensitivity for the uptake/rollout in the US

Device usage in 2026
(patients/device)

rNPV

50

150

250

500

700

Total devices installed in 2026

50

€85.5m
(-67%)

€112.7m
(-57%)

€137.9m
(-47%)

€198.1m
(-24%)

€244.6m
(-6%)

110

€103.2m
(-60%)

€158.9m
(-39%)

€211.5m
(-19%)

€338.8m
(30%)

€438.1m
(68%)

150

€115.0m
(-56%)

€189.7m
(-27%)

€260.6m
(0%)

€432.7m
(66%)

€567.1m
(118%)

190

€126.9m
(-51%)

€220.4m
(-15%)

€309.7m
(19%)

€526.5m
(102%)

€696.1m
(167%)

250

€144.6m
(-45%)

€266.6m
(2%)

€383.3m
(47%)

€667.3m
(156%)

€889.6m
(241%)

Source: Edison Investment Research

Financials

MagForce AG is the parent company of the MagForce group, which consists of seven companies: MagForce AG, MagForce USA, MagForce USA Holding GmbH, MagForce Ventures GmbH, MT MedTech Engineering GmbH, and the wholly owned regional sales subsidiaries MagForce sp. z o.o. in Poland and MagForce Nanomedicine S.L. in Spain. The company is not required to report consolidated financial statements under HGB accounting standards. As MagForce USA is not currently consolidated as per company reporting, we do not consolidate its contributions into our financial forecasts. However, we do include it in our valuation. We expect that the company will start consolidating its statements as MagForce USA becomes a profitable operation.

Revenues from sales increased significantly during H120 to €384k (H119: €26k), reflecting the strong uptick in commercial treatments. A total of 17 patients were treated in H120 (11 in Germany and six in Poland). MagForce booked €212k relating to NanoTherm treatments in Germany and €173k relating to the delivery of NanoTherm and catheters to its subsidiaries, which can be considered primarily as treatment revenues ex Germany. Other operating income of €332k was flat year-on-year (H119: €329k) and mainly related to recharges of €206k to its subsidiaries for management and administrative services. MagForce also capitalised €196k relating to a one-off expense for preparing product files in accordance with the EMA’s new Medical Device Regulation. Cost of materials increased to €286k (H119: €194k) due to an increase in raw materials, supplies and purchased goods, and personnel expenses increased to €2.1m (H119: €1.8m). The operating loss declined slightly to €3.4m in H120 (H119: loss of €3.6m), although the higher net financial expense led to a flat reported net loss of €4.9m in H120 (H119: €4.9m loss).

We expect MagForce to report operating losses until sales pick up after reimbursement has been fully resolved and patient centre growth continues ex Germany. After this we forecast sustainable profitability from 2022 with operating margins of c 50%. If MagForce USA is consolidated, we believe these margins would improve to c 60%, as would the top line. We have revised our sales forecasts downwards in 2021 to reflect management’s new guidance, and brought down COGS and other operating expenses to be in line with H120, Exhibit 3. Management now expects a threefold increase in patient treatments during 2021, albeit from a lower base. However, this is lower than our previous estimates as we now only expect two operational treatment centres ex Germany by end-2021 (vs four previously). Management expects the gross margin to improve as treatment sales ramp up due to economies of scale. We have also increased forecast capex due to the expected increase in device manufacture ahead of launch in the US and additional European countries.

Exhibit 3: Summary of our forecast changes for 2020 and 2021

€000s

2020e old

2020e new

2021e old

2021e new

Revenues

1,058

805

4,928

2,415

Cost of sales

(2,092)

(595)

(1,190)

(720)

Operating profit/(loss)

(10,745)

(6,557)

(6,198)

(5,210)

PBT - normalised

(11,955)

(8,559)

(6,158)

(7,495)

EPS (€) - normalised

(0.43)

(0.31)

(0.22)

(0.27)

Source: Edison Investment Research

MagForce reported cash and cash equivalents of €1.7m at 30 June 2020. In January, the second €3.0m tranche of a €35.0m loan facility with the European Investment Bank (EIB) was disbursed, and in June the first €2.5m tranche of a €15.0m convertible bond facility with Yorkville Advisors Global LP was drawn. Both will facilitate the continued commercial expansion plans. We believe an additional €25m will be required to fund operations until profitability in 2022. We expect that this will be drawn from the remaining €12.5m zero interest bearing convertible notes with Yorkville or the remaining €22m of the EIB loan facility. In H120, interest expenses on the EIB loan amounted to €774k (liability of €15.2m outstanding) and interest repayments of €208k were made on the €5m convertible bond issued in March 2017. At 30 June 2020, MagForce had net debt of €22.0m.

MagForce USA had cash of €2.0m at 30 June 2020, which will ensure funding for the Stage 2 US prostate cancer trial and preparations for commercialisation in H221. MagForce AG’s holding in MagForce USA is 65.3%.

Exhibit 4: Financial summary

€000s

2018

2019

2020e

2021e

Year end 31 December

HGB

HGB

HGB

HGB

PROFIT & LOSS

 

 

Revenue

 

 

67

840

805

2,415

Cost of Sales

(455)

(164)

(595)

(720)

Gross Profit

(388)

675

210

1,695

EBITDA

 

 

(6,470)

(5,561)

(6,557)

(5,210)

Operating Profit (before amort. and except.)

(7,062)

(6,171)

(6,557)

(5,210)

Intangible Amortisation

(6)

(32)

0

0

Exceptionals

13,896

0

0

0

Other

(877)

(1,058)

0

0

Operating Profit

5,951

(7,261)

(6,557)

(5,210)

Net Interest

(1,591)

(1,468)

(2,002)

(2,285)

Profit Before Tax (norm)

 

 

(8,653)

(7,639)

(8,559)

(7,495)

Profit Before Tax (reported)

 

 

4,360

(8,729)

(8,559)

(7,495)

Tax

(2)

(2)

0

0

Profit After Tax (norm)

(8,655)

(7,641)

(8,559)

(7,495)

Profit After Tax (reported)

4,358

(8,731)

(8,559)

(7,495)

Average Number of Shares Outstanding (m)

26.4

27.1

27.8

27.8

EPS - normalised (€)

 

 

(0.33)

(0.28)

(0.31)

(0.27)

EPS - (reported) (€)

 

 

0.17

(0.32)

(0.31)

(0.27)

Dividend per share (c)

0.0

0.0

0.0

0.0

Gross Margin (%)

N/A

80.4

26.1

70.2

EBITDA Margin (%)

N/A

N/A

N/A

N/A

Operating Margin (before GW and except.) (%)

N/A

N/A

N/A

N/A

BALANCE SHEET

Fixed Assets

 

 

34,470

34,381

36,530

39,030

Intangible Assets

91

172

172

172

Tangible Assets

3,401

3,227

5,376

7,876

Investments

30,978

30,983

30,983

30,983

Current Assets

 

 

2,664

1,682

6,675

7,783

Stocks

291

59

163

197

Debtors

95

96

309

926

Cash

1,493

167

4,600

5,057

Other

785

1,360

1,603

1,603

Current Liabilities

 

 

(3,049)

(5,057)

(5,780)

(6,882)

Creditors

(3,049)

(5,057)

(5,780)

(6,882)

Short term borrowings

0

0

0

0

Long Term Liabilities

 

 

(15,926)

(16,894)

(31,874)

(41,874)

Long term borrowings

(15,876)

(16,674)

(31,674)

(41,674)

Other long term liabilities

(50)

(221)

(200)

(200)

Net Assets

 

 

18,159

14,111

5,552

(1,943)

CASH FLOW

Operating Cash Flow

 

 

(4,636)

(3,143)

(5,750)

(3,793)

Net Interest

(2,468)

(2,526)

(2,002)

(2,285)

Tax

(2)

(2)

0

0

Capex

(1,370)

(1,941)

(2,815)

(3,465)

Acquisitions/disposals

0

0

0

0

Financing

0

6,286

0

0

Dividends

0

0

0

0

Net Cash Flow

(8,476)

(1,326)

(10,567)

(9,543)

Opening net debt/(cash)

 

 

4,347

14,383

16,506

27,073

HP finance leases initiated

0

0

0

0

Other

(1,560)

(797)

0

0

Closing net debt/(cash)

 

 

14,383

16,506

27,073

36,617

Source: Company accounts, Edison Investment Research. Note: Reported other operating income (non-cash) relating to the transfer of shares between subsidiaries has been booked as an exceptional item in our model.


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This report has been commissioned by MagForce and prepared and issued by Edison, in consideration of a fee payable by MagForce. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

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Copyright: Copyright 2020 Edison Investment Research Limited (Edison).

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New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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